Chap。IX
DoesnotInterestfallinProportionasWealthincreases？
Ianswerintheaffirmative:provideditbesupposedthatdissipationdonotincreaseinproportiontothewealth。Nowinageneralproposition，suchasthiswhichstandsattheheadofourchapter，thisverynecessaryprovisoisapttobeoverlooked，andthuspeopleareledtoerror。Themannersofapeople，nottheirexternalcircumstancesastoriches，arethatwhichrendersthemfrugalorextravagant。What，therefore，dependsuponthespiritofapeople，cannotbechanged，butinconsequenceofachangeofthatspirit。
Iftherateofinterestbehigh，fromatasteofdissipation，letforeigntradethrowinwhatloadsofmoneyitmay，interestwillstandhigh，untilmannersdochange。Everyclassofapeoplehastheirpeculiarspirit。Thefrugalmerchantwillaccumulatewealth，andtheprodigallordwillborrowit。Inthissituation，internalcirculationwillberapid，andlandswillshifthands。
Ifthisrevolutionshouldproveacorrectivetodissipation，byvestingpropertyinthosewhohavecontractedafirmhabitoffrugality，thenanaugmentationofwealthmaysinktherateofinterest。Butif，onthecontrary，thelawsandmannersofthecountrydodistinguishclassesbytheirmannerofliving，andmodeofexpence，itistentoonebuttheindustriousandfrugalmerchantwillputontheprodigalgentleman，themomenthegetsintoafinecountryseat，andhearshimselfcalledyourHonour。
Incertaincountries，thememoryofpastindustrycarriesadregalongwithit，whichnothingbutexpensivelivinghaspowertopurgeaway。
Letthissufficeatpresentuponthesubjectofinterest:itissoconnectedwiththedoctrineofcredit，thatitwillrecuragainatalmosteverystepaswegoalong。
NOTES:
1。InFranceparticularly。
2。Thetermsregorgingandstagnating，arethebestIcanfallupontoexpresstheideaheredefined；andthereforeIshalltakethelibertytousetheminthissensewhereverIshallhaveoccasiontospeakconcerningasuperfluityofcoinorofmoney。
PartII
OfBanksChap。I
OfthevariousKindsofCreditWehavealreadypointedoutthenatureofcredit，whichisconfidence；andwehavededucedtheprincipleswhichinfluencetherateofinterest，theessentialrequisiteforitssupport。
Wecomenowtotreatofdomesticcirculation；wherewearetodeducetheprinciplesofbanking。Thisisthegreatenginecalculatedforcarryingiton。
ThatImay，withorder，investigatethemanycombinationsweshallheremeetwith，Imustpointoutwhereinbanksdifferfromoneanotherinpointofpolicy，aswellasintheprincipleuponwhichtheircreditisbuilt。
Iftheybeconsideredrelativelytotheirpolicy，theymaybedividedintobanksofcirculation，andbanksofdeposit。
Iftheybeconsideredrelativelytotheprinciplesuponwhichtheircreditisbuilt，theymaybedividedintobanksuponprivatecredit，banksuponmercantilecredit，andbanksuponpubliccredit。
ItistothislastdivisiononlyImustattend，inthedistributionofwhatistofollow；andthereforeitispropertosetoutbyexplainingwhatIunderstandbythetermsIhavehereintroduced。
First，privatecredit。Thisisestablisheduponasecurity，realorpersonal，ofvaluesufficienttomakegoodtheobligationofrepaymentbothofcapitalandinterest。Thisisthemostsolidofall。
Secondly，mercantilecredit。Thisisestablishedupontheconfidencethelenderhas，thattheborrower，fromhisintegrityandknowledgeintrade，maybeabletoreplacethecapitaladvanced，andtheinterestdueduringtheadvance，intermsoftheagreement。Thisisthemostprecariousofall。
Thirdly，publiccredit。Thisisestablishedupontheconfidencereposedinastate，orbodypolitic，whoborrowmoneyuponconditionthatthecapitalshallnotbedemandable；butthatacertainproportionalpartofthesumshallbeannuallypaid，eitherinlieuofinterest，orinextinctionofpartofthecapital；forthesecurityofwhich，apermanentannualfundisappropriated，withaliberty，however，tothestatetofreeitselfatpleasure，uponrepayingthewhole；whennothingtothecontraryisstipulated。
Thesolidityofthisspeciesofcreditdependsuponcircumstances。
Thedifferencebetweenthethreekindsofcreditliesmoreintheobjectoftheconfidence，andthenatureofthesecurity，thanintheconditionoftheborrower。Eitheraprivateman，amerchant，orastate，maypledge，forthesecurityofaloan，arealoramoveablesecurity，withanobligationtorefundthecapital。Inthiscase，theobligationstandsuponthesolidbasisofprivatecredit。
Eitheraprivateman，amerchant，orastate，maystrikeoutprojectswhichcarryafavourableappearanceofsuccess，andthereuponborrowconsiderablesumsofmoney，repayablewithinterest。Inthiscase，theobligationstandsuponamercantilecredit。
Eitheraprivateman，amerchant，orastate，maypledgeforthesecurityofmoneyborrowedaperpetualannualincome，thefundofwhichisnottheirproperty，withoutanyobligationtorefundthecapital:suchobligationsstandupontheprinciplesofpubliccredit。
Iallowthereisagreatresemblancebetweenthethreespeciesofcredithereenumerated:therearehoweversomecharacteristicdifferencesbetweenthem。
First，inthedifficultyofestablishingandsupportingthem。
Privatecreditisinseparable，insomedegree，fromhumansociety。Wefinditsubsistinginallages:thesecurityispalpable，andtheprinciplesonwhichitisbuiltaresimpleandeasytobecomprehended。Publiccreditisbutalateinvention:
itistheinfantofcommerce，andofextensivecirculation。Ithassuppliedtheplaceofthetreasuresofold，whichwereconstantandreadyresourcestostatesmenincasesofpublicdistress:thesecurityisnotpalpable，norreadilyunderstood，bythemultitude；becauseitrestsuponthestabilityofcertainfundamentalmaximsofgovernment。Mercantilecreditisstillmoredifficulttobeestablished；becausethesecurityisthemostprecariousofany；itdependsuponopinionandspeculation，morethanuponadeterminatefundprovidedforrepaymentofeithercapitalorinterest。
Secondly，theydifferinthenatureofthesecurityandobjectofconfidence。
Privatecredithasadeterminateobjectofconfidence，viz。
therealexistenceofavalueinthehandsofthedebtor，sufficienttoacquitbothcapitalandinterest。Publiccredithasthevisiblesecurityofafundappropriatedfortheperpetualpaymentoftheinterest。Mercantilecreditdependswhollyupontheintegrity，capacity，andgoodfortuneofthedebtor。
Thethirddifferenceiswithregardtotheeaseoftransfer。
Allpublicdebtsstandgenerallyonthesamebottom。Nopartofthesamefundisbetterthananother:thepriceofthemispubliclyknown，andthesecuritiesarelaidinthemostconvenientwayfortransfer，thatis，forcirculation，withoutconsentofthedebtor。Thisisfarfrombeingthecaseinprivatesecurities。Norisitthecaseinthemercantile，exceptinbillspayabletoorderortobearer；inwhichcasesalone，thecreditorcaneffectuallytransferwithouttheconsentofthedebtor。
Thefourthdifferenceisdiscoveredinthestabilityoftheconfidence。
Nothingcanshakeprivatecredit，butanappearanceofinsolvencyintheverydebtor。Butthebankruptcyofoneconsiderablemerchant，maygiveashocktomercantilecreditalloverEurope:andnothingwillhurtpubliccredit，aslongasthestipulatedinterestcontinuesregularlytobepaid，andaslongasthefundsappropriatedforthispaymentremainentire。
Fromwhathasbeensaid，Ihopethethreespeciesofcredithavebeensufficientlyexplained；and，fromwhatistofollow，weshallfeeltheutilityofthisdistribution。
Chap。II
OfprivateCreditPrivatecreditiseitherreal，personal，ormixed。
Realsecurity，everybodyunderstands。Itistheobjectoflaw，notofpolitics，togiveanenumerationofitsdifferentbranches。Bythisterm，weunderstandnomorethanthepledginganimmoveablesubjectforthepaymentofadebt。Asbyapersonalsecurityweunderstandtheengagementofthedebtor’swholeeffectsforthereliefofhiscreditor。Themixed，Ihavefounditnecessarytosuperadd，inordertoexplainwithmorefacility，thesecurityofonespeciesofbanks。Thenotesissuedbybanksuponprivatecredit，standuponamixedsecurity:thatis，bothrealandpersonal。Personal，asfarastheyaffectthebanker，andthebankingstockpledgedforthesecurityofthepaper:andreal，asfarastheyaffecttherealsecuritiesgrantedtothebankerforthenoteshelends，whichafterwardsenterintocirculation。
Therulingprincipleinprivatecredit，andthebasisonwhichitrests，isthefacilityofconverting，intomoney，theeffectsofthedebtor；becausethecapitalandinterestareconstantlysupposedtobedemandable。Theproperway，therefore，tosupportthissortofcredittotheutmost，istocontriveareadymethodofappretiatingeverysubjectaffectablebydebts；
andsecondly，ofmeltingitdownintosymbolicalorpapermoney。
Informertimes，whencirculationwasinconsiderable，theschemeofmeltingdownthepropertyofdebtors，forthepaymentofcreditors，wasimpracticable；andaccordinglyweseethatcapitalssecuredonlandpropertywerenotdemandable。Thisformedanotherspeciesofcredit，differentfromanywehavementioned；whichdifferedfrompubliccreditinthisonly，thatthesolidpropertyproducingtheincome，wasreallyinthehandsofthedebtor；whereasthefundwhichproducesthepublicrevenueisnotinthehandsofthestate。Thissubdivisionwehaveomitted，asitsbasis，inbothcases，restssolelyupontheregularpaymentoftheinterest。OfthisnaturearethecontractsofconstitutioninFrance，andtheoldinvestmentsofannualrentinScotland。Therearefewnations，Ibelieve，inEurope，wheresometraces，atleast，ofthiskindofsecuritydonotremain。
Inorder，then，tocarryprivatecredittoitsgreatestextent，allentailsuponlandsshouldbedissolved；allobligationsshouldberegularlyrecordedinpublicregisters；thevalueofalllandsshouldbeascertained，themomentanysecurityisgranteduponthem；andthestatesmanshouldinterposebetweenparties，toacceleratetheliquidationofalldebts，intheshortesttime，andattheleastexpencepossible。
Althoughthismethodofproceedingbethemosteffectualtosecure，andtoextendprivatecredit，yetitisnot，atalltimes，expedienttohaverecoursetoit:thishasbeenabundantlyexplainedinthe27thchapterofthesecondbook；andthereforeI
shallnothereinterruptmysubjectwithaneedlessrepetition。
Chap。III
OfBanksIndeducingtheprinciplesofbanks，IshalldothebestI
cantogothroughthesubjectsystematically。
Ihavedividedcreditintothreebranches，private，mercantile，andpublic。Thisdistributionwillbeofuseonmanyoccasions，andshallbefollowedasfarasitwillgo，consistentlywithperspicuity:but，ashasbeenoftenobserved，subjectsofacomplexnaturecannotbebroughtundertheinfluenceofafewgeneralprinciples，withoutrunningintothemodernviceofformingsystems，bywire-drawingmanyrelationsinordertomakethemanswer。
Thegreatoperationsofdomesticcirculationmaybebetterdiscoveredbyanexaminationintotheprinciplesuponwhichwefindbankingestablished，thanbyanyothermethodIcancontrive。IthasbeenbyinquiringintothenatureofthosebankswhicharethemostremarkableinEurope，thatIhavegatheredthelittleknowledgeIhaveofthetheoryofdomesticcirculation。
Thisinducesmetothinkthatthebestwaytocommunicatemythoughtsonthissubject，istolaydowntheresultofmyinquiriesrelativelytotheveryobjectofthem。
Aftercomparingtheoperationsofdifferentbanksinpromotingcirculation，IfindIcandividethem，astotheirpolicy，intotwogeneralclasses，viz。thosewhichissuenotespayableincointobearer；andthosewhichonlytransferthecreditwrittendownintheirbooksfromonepersontoanother。
Thosewhichissuenotes，Icallbanksofcirculation；thosewhichtransfertheircredit，Icallbanksofdeposit。
Bothindeedmaybecalledbanksofcirculation，becausebytheirmeanscirculationisfacilitated；but，asdifferenttermsservetodistinguishideasdifferentinthemselves，theseIhereemploywillanswerthepurposeaswellasanyothers，whenoncetheyaredefined；andcirculationundoubtedlyreapsfargreateradvantagesfrombankswhichissuenotestransferableeverywhere，thanfrombankswhichonlytransfertheircreditontheveryspotwherethebooksarekept。
Ishall，accordingtothisdistribution，firstexplaintheprinciplesuponwhichthebanksofcirculationareconstitutedandconducted，beforeItreatoftheothers。
ThiswillleadmetoavailmyselfofthedivisionIhavemadeofcredit，intoprivate，mercantile，andpublic；because，accordingtothepurposesforwhichabankisestablished，thegroundofconfidence，thatis，thecreditofthebank，comestorestupononeorotherofthem。
Incountrieswheretradeandindustryareintheirinfancy，creditcanbebutlittleknown；consequently，theywhohavesolidproperty，mustfindgreatdifficultyinturningitintomoney；
withoutmoney，again，industrycannotbecarriedon，aswehaveabundantlyexplainedinthe26thchapterofthesecondbook；
consequentlywithoutcreditthewholeplanofnationalimprovementwillbedisappointed。
Undersuchcircumstances，itispropertoestablishabankupontheprinciplesofprivatecredit。Thisbankmustissuenotesuponlandandothersecurities，andtheprofitsofitmustarisefromthepermanentinterestdrawnforthemoneylent。
OfthisnaturearethebanksofScotland。Tothemtheimprovementofthiscountryisentirelyowing；anduntiltheyaregenerallyestablishedinothercountriesofEurope，wheretradeandindustryarelittleknown，itwillbeverydifficulttosetthesegreatenginestowork。
AlthoughIhaverepresentedthisspeciesofbanks，whichI
shallcallbanksofcirculationuponmortgage，aspeculiarlywelladaptedtocountrieswhereindustryandtradeareintheirinfancy，theirusefulnesstoallnations，whohaveuponanaverageafavourablebalanceupontheirtrade，willsufficientlyappearuponanexaminationoftheprinciplesuponwhichtheyareestablished。
ItisforthisreasonthatIhaveappliedmyselftoreducetoprinciplesthemanyoperationsoftheScotchbanks，duringthetimetheywereinthegreatestdistressimaginable，fromtheheavybalancethecountryowedduringthelastyearsofthelatewar，andforsometimeafterthepeacein1763。BythisIflattermyselftodoaparticularservicetoScotland，aswellastosuggesthintswhichmayproveuseful，nottoEnglandonly，buttoallcommercialcountries，who，byimitatingthisestablishment，willreapadvantagesofwhichtheyareatpresentdeprived。
Forthesereasons，IhopethedetailIshallenterintowithregardtoScotland，willnotappeartedious，bothfromthevarietyofCUriOuscombinationsitwillcontain，asalsofromthelightsitwillcastuponthewholedoctrineofcirculation，whichisthepresentobjectofourattention。
Incountrieswheretradeisestablished，industryflourishing，creditextensive，circulationcopiousandrapid，asisthecasewithEngland，banksuponmortgage，howeverusefultheymayproveforotherpurposes，wouldnotanswerthedemandsofthetradeofLondon，andtheserviceofgovernment，sowellasthebankofEngland。
Therulingprincipleofthisbank，andthegroundoftheirconfidence，ismercantilecredit。ThebankofEnglanddoesnotlenduponmortgage，norpersonalsecurity:theirprofitsarisefromdiscountingbills；loanstogovernment，uponthefaithoftaxes，tobepaidwithintheyear；anduponthecreditcashofthosewhodealwiththem。
AbanksuchasthatofEngland，cannotthereforebeestablished，exceptinagreatwealthymercantilecity，wheretheaccumulationofthesmallestprofitsamount，attheendoftheyear，toveryconsiderablesums。
InFrance，undertheregencyoftheDukeofOrleans，therewasabankerectedupontheprinciplesofpubliccredit。Thegroundofconfidencethere，andtheonlysecurityforallthepapertheyissued，werethefundsappropriatedforthepaymentoftheinterestofthepublicdebts。
Itisforthesakeoforderandmethod，thatIproposetoexplaintheprinciplesofbanking，accordingtothisdistribution。Imusthoweverconfess，thatalthoughIrepresenteachofthethreekindsofbanksashavingacauseofconfidencepeculiartoitself，towit，eitherprivate，mercantile，orpubliccredit；yetweshallfindamixtureofallthethreespeciesofcreditenteringintothecombinationofeveryoneofthem。
Banking，intheagewelive，isthatbranchofcreditwhichbestdeservestheattentionofastatesman。Upontherightestablishmentofbanks，dependstheprosperityoftrade，andtheequablecourseofcirculation。Bythem1*solidpropertymaybemelteddown。Bythemeansofbanks，moneymaybeconstantlykeptatadueproportiontoalienation。Ifalienationincrease，morepropertymaybemelteddown。Ifitdiminish，thequantityofmoneystagnating，wil1beabsorbedbythebank，andpartofthepropertyformerlymelteddowninthesecuritiesgrantedtothem，willbe，asitwere，consolidatedanew。Banksmustpay，asagentsforthecountry，thebalanceoftheirtradewithforeignnations。
Bankskeepthemintsatwork；anditisbytheirmeans，principally，thatprivate，mercantile，andpubliccreditaresupported。Icanpointouttheutilityofbanksinnowaysostriking，astorecaltomindthesurprisingeffectsofMrLaw’sbank，establishedinFrance，atatimewhentherewasneithermoneyorcreditinthekingdom。Thesuperiorgeniusofthismanproduced，intwoyearstime，themostsurprisingeffectsimaginable；herevivedindustry；heestablishedconfidence；andshewedtotheworld，thatwhilethelandedpropertyofanationisinthehandsoftheinhabitants，andwhilethelowerclassesarewillingtobeindustrious，moneynevercanbewanting。Imustnowproceedinorder，towardstheinvestigationoftheprincipleswhichinfluencethisintricateandcomplicatedbranchofmysubject。
Chap。IV
Banksofcirculationuponmortgageorprivatecredit，arethosewhichissuenotesuponprivatesecurity，payabletobearerondemand，inthecurrentcoinofthenation。Theyareconstitutedinthefollowingmanner。
Anumberofmenofpropertyjointogetherinacontractofbanking，eitherratifiedornotbypublicauthority，accordingtocircumstances。Forthispurpose，theyformastockwhichmayconsistindifferentlyofanyspeciesofproperty。Thisfundisengagedtoallthecreditorsofthecompany，asasecurityforthenotestheyproposetoissue。Sosoonasconfidenceisestablishedwiththepublic，theygrantcredits，orcashaccompts，upongoodsecurity；concerningwhichtheymaketheproperregulations。Inproportiontothenotesissuedinconsequenceofthesecredits，theyprovideasumofcoin，suchastheyjudgetobesufficienttoanswersuchnotesasshallreturnuponthemforpayment。Nothingbutexperiencecanenablethemtodeterminetheproportionbetweenthecointobekeptintheircoffers，andthepaperincirculation。Thisproportionvariesevenaccordingtocircumstances，asweshallafterwardsobserve。
Theprofitsofthebankproceedfromtheinterestpaiduponallthemoneyadvancedbythebank，inconsequenceofcreditsgiven。2*
Outoftheseprofitsmustbededucted，first，thechargeofmanagement；secondly，thelossofinterestforallthecointheypreserveintheircoffers，aswellastheexpencetheyareputtoinproddingit；andthirdly，theexpenceoftransactingandpayingallbalancesduetoothernations。
Inproportion，therefore，astheinterestuponthemoneyadvancedbythebankinconsequenceofthesecurities，exceedsthelossofinterestonthecoininthebank，theexpenceofmanagement，andofproddingfundsabroadtopaybalances，inthesameproportionistheirprofit；whichtheymayeitherdivide，accumulate，oremploy，astheythinkfit。
Letitbeobserved，thatIdonotconsidertheoriginalbankstock，ortheinterestarisingfromthat，asanypartoftheprofitsofthebank。Sofarasitregardsthebank，itistheiroriginalproperty；andsofarasitregardsthepublic，itservesforacollateralsecuritytoit，forthenotesissued。Itbecomesapledge，asitwere，forthefaithfuldischargeofthetrustreposedinthebank:withoutsuchapledge，thepubliccouldhavenosecuritytoindemnifyit，incasethebankshouldissuenotesfornopermanentvaluereceived。Thiswouldbethecase，iftheythoughtfittoissuetheirpapereitherinpaymentoftheirownprivatedebts，orforarticlesofpresentconsumption，orinaprecarioustrade。
Whenpaperisissuedbyabankfornovaluereceived，thesecurityofsuchpaperstandsupontheoriginalcapitalofthebankalone；whereaswhenitisissuedforvaluereceived，thatvalueisthesecurityonwhichitimmediatelystands，andthebankstockis，properlyspeaking，onlysubsidiary。
Ihavedweltthelongeruponthiscircumstance，becausemany，whoareunacquaintedwiththenatureofbanks，haveadifficultytocomprehendhowtheyshouldeverbeatalossformoney，astheyhaveamintoftheirown，whichrequiresnothingbutpaperandinktocreatemillions。Butiftheyconsidertheprinciplesofbanking，theywillfindthateverynoteissuedforvalueconsumed，insteadofvaluereceivedandpreserved，isneithermoreorless，thanapartialspendingeitheroftheircapital，orprofitsonthebank。Isnotthistheeffectoftheexpenceoftheirmanagement？Isnotthisexpencepaidintheirnotes？Butdideveranybodyimaginethatthisexpencedidnotdiminishtheprofitsofbanking？Consequently，suchexpencemayexhausttheseprofits，ifcarriedfarenough；andifcarriedstillfarther，willdiminishthecapitalofthebankingstock。
Asafartherillustrationofthisprinciple，letmesuppose，anhonestman，intelligent，andcapabletoundertakeabank。I
saythatsuchaperson，withoutoneshillingofstock，maycarryonabankofdomesticcirculation，toasgoodpurposeasifhehadamillion；andhispaperwillbeeverybitasgoodasthatofthebankofEngland。Everynoteheissueswillbesecuredongoodprivatesecurity；thissecuritycarriesinteresttohim，inproportiontothemoneywhichhasbeenadvancedbyhim，andstandsgoodforthenoteshehasissued。Supposethenthatafterhavingissuedforamillionsterling，allthenotesshouldreturnuponhiminoneday。Isitnotplain，thattheywillfind，withthehonestbanker，theoriginalsecurities，takenbyhimatthetimeheissuedthem；andisitnottrue，thathewillhave，belongingtohimself，theinterestreceiveduponthesesecurities，whilehisnoteswereincirculation，exceptsofarasthisinteresthasbeenspentincarryingonthebusinessofhisbank？Largebankstocks，therefore，serveonlytoestablishtheircredit；tosecuretheconfidenceofthepublic，whocannotseeintotheiradministration；butwhowillinglybelieve，thatmenwhohaveconsiderablepropertypledgedinsecurityoftheirgoodfaith，willnotprobablydeceivethem。
Thisstockisthemorenecessary，fromtheobligationtopayinthemetals。Coinmaybewanting，uponsomeoccasions，tomenofthegreatestlandedproperty。Isthisareasontosuspecttheircredit？Justsoofbanks。ThebankofEnglandmaybepossessedoftwentymillionssterlingofgoodeffects，towit，theircapital；andthesecuritiesforallthenotestheyhaveissued；andyetthatbankmightbeobligedtostoppayment，uponasuddendemandofafewmillionsofcoin。
Runsuponabankwellestablished，betraygreatwantofconfidenceinthepublic；andthiswantofconfidenceproceedsfromtheignorancethegreatestpartofmenarein，withregardtothestateoftheiraffairs，andtotheprinciplesuponwhichtheirtradeiscarriedon。
Fromwhathasbeensaid，wemayconclude，thatthesolidityofabankwhichlendsuponprivatesecurity，doesnotsomuchdependupontheextentoftheiroriginalcapital，asuponthegoodregulationstheyobserveingrantingcredit。Inthisthepublicisnearlyinterested；becausethebanksecuritiesarereallytakenforthepublic，whoarecreditorsupontheminvirtueofthenoteswhichcirculatethroughtheirhands。
Chap。V
SuchBanksoughttoissuetheirNotesonprivate，notmercantileCreditLetme，therefore，reasonupontheexampleoftwobankers；
oneissueshisnotesuponthebestrealorpersonalsecurity；
anothergivescredittomerchantsandmanufacturers，upontheprinciplesofmercantilecredit，whichwehaveexplainedabove；
thenotesoftheoneandoftheotherenterintocirculation，andthequestioncomestobe，whicharethebest？Ifwejudgebytheregularityofthepaymentofnotesonpresentation，perhapsthenotesoftheoneareasreadilypaidasthoseoftheother。Ifwejudgebythestockofthetwobankers，perhapstheymaybeequal，bothinvalueandsolidity；butitisnotuponeitherofthesecircumstancesthatthequestiondepends。Thenotesincirculationmayfarexceedtheamountofthelargestbankstock；andtherefore，itisnotontheoriginalstock；butonthesecuritiestakenatissuingthenotes，thatthesolidityofthetwocurrenciesistobeestimated。Thosesecuredonprivatecredit，areassolidaslandsandpersonalestates；theystandupontheprinciplesofprivatecredit。Thosesecuredontheobligationsofmerchantsandmanufacturers，dependinguponthesuccessoftheirtrade，aregoodorbadinproportiontosuchsuccess。Everybankruptcyofoneoftheirdebtors，involvesthebank，andcarriesoffeitherapartoftheirprofits，oroftheirstock。
Whichway，therefore，canthepublicjudgeoftheaffairsofbankers，exceptbyattendingtothenatureofthesecuritiesuponwhichtheygivecredit。
Chap。VI
UseofsubalternBankersandExchangersHereitmaybeurged，thatthegreatuseofbanksistomultiplycirculation，andtofurnishtheindustriouswiththemeansofcarryingontheirtraffic:thatifbanksinsistuponthemostsolidsuretiesbeforetheygivecredit，thegreatutilityofthemmustcease；becausemerchantsandmanufacturersareneverinasituationtoobtaincredituponsuchterms。
Thisargumentprovesonly，thatbanksarenot，alone，sufficientforcarryingoneverybranchofcirculation。Atruthwhichnobodywillcontrovert。Butastheyareofuseincarryingonthegreatbranchesofcirculation，itispropertopreventthemfromengaginginschemeswhichmaydestroytheircreditaltogether。
Ihaveobservedabove，thatthismethodofissuingnotesuponprivatesecurity，waspeculiarlywelladaptedtocountrieslikeScotland，wheretradeandindustryareintheirinfancy。
Merchantsandmanufacturersthere，haveconstantoccasionformoneyorcredit；andatthesametime，theycannotbesupposedtohaveeitherrealorpersonalestatestopledge，inordertoobtainaloandirectlyfromthebanks，whooughttolenduponnoothersecurity。
Toremovethisdifficulty，wefindasetofmerchants，menofsubstance，whoobtainfromthebanksveryextensivecreditsuponthejointrealandpersonalsecurityofthemselvesandfriends。
Withthisassistancefromthebank，andwithmoneyborrowedfromprivatepeople，repayableondemand，somethingbelowthecommonrateofinterest，theysupportthetradeofScotland，bygivingcredittothemerchantsandmanufacturers。
Tothissetofmen，therefore，arebanksofcirculationuponmortgagetoleavethisparticularbranchofbusiness。Itistheirduty，itistheinterestofthecountry，andnolessthatofbanks，thattheybesupportedinsousefulatrade；atradewhichanimatesallthecommerceandmanufacturesofScotland，andwhichconsequentlypromotesthecirculationofthoseverynotesuponwhichtheprofitsofthebanksdoarise。
Thesemerchantsaresettledinallthemostconsiderabletowns:theyarewellacquaintedwiththestock，capacity，industry，andintegrityofallthedealersintheirdistrict:
theyare，many。andbythisareabletogothroughallthedetailwhichtheirbusinessrequires；andtheirprofits，asweshallseepresently，aregreaterthanthoseofbanks，wholendatastatedinterest。
ThecommondenominationbywhichtheyarecalledinScotland，isthatofbankers；but，toavoidtheirbeingconfoundedwiththebankersinEnglandwhosebusinessisverydifferentweshall，whilewearetreatingofthedoctrineofbanks，callthembythenameofexchangers，sincetheirtradeisprincipallycarriedonbybillsofexchange。
Asoftenastheseexchangersgivecredittodealersinanyway，theyconstantlystateacommissionof1/2percentormore，accordingtocircumstances，overandabovetheinterestoftheiradvance；theseareprofits，whichgreatlysurpassthoseofanybank。Onethousandpoundscreditgivenbyabank，maynotproducetenpoundsinayearforinterest:whereaswerealikecreditgivenbyabanker，toamerchant，whodrawsitout，andreplacesitfortytimesinayear，therewillariseuponitacommissionof20percentor200l。
Thissetofmenareexposedtorisksandlosses，whichtheybearwithoutcomplaint，becauseoftheirgreatprofits；butitimpliesadetail，whichnobankcandescendto。
Theseexchangersbreakfromtimetotime；andnoessentialhurtistherebyoccasionedtonationalcredit。Thelossfallsuponthosewholendtothem，ortrustthemwiththeirmoney，uponprecarioussecurity；anduponmerchants，whomakeallowancesforsuchrisks。Inaword，theyareakindofinsurers，anddrawpremiumsinproportiontotheirrisks。
Tothissetofmen，therefore，itshouldbelefttogivecredittomerchants，asthecredittheygiveispurelymercantile；andtobanksalone，whogivecreditongoodprivatesecurity，itshouldbelefttoconductthegreatnationalcirculation，whichoughttostanduponthesolidprinciplesofprivatecredit。
FromthisexamplewemaydiscoverthejustnessofthedistinctionIhavemadebetweenprivateandmercantilecredit:
hadInotfounditnecessary，Ishouldnothaveintroducedit。
Chap。VII
ConcerningtheObligationtopayinCoin，andtheConsequencesthereofInallbanksofcirculationuponmortgage，theobligationinthenoteistopayincoin，upondemand:andinthefamousbankofMrLaw，therewasaverynecessaryclauseaddedtothenote；
towit，thatthecoinwastobeofthesameweight，finenessanddenomination，asatthedateofthenote。Thiswasdone，inordertopreventtheinconvenienceswhichmightresulttoeitherparty，bytheking’sarbitrarilyraisingorsinkingthedenominationsofthecoin；apracticethenveryfamiliarinFrance。
Thisobligationtopayincoin，owesitsorigintothelowstateofcreditinEuropeatthetimewhenbanksfirstbegantobeintroduced；anditisnotlikelythatanyotherexpedientwillsoonbefallenupontoremovetheinconvenienceswhichresultfromitindomesticcirculation，aslongassomepersonsofthemostacuteunderstandinginmanythings，considerallmoney，except，cointobefalseandfictitious。
Ihavealreadythrownoutabundanceofhints，fromwhichitmaybegathered，that，inmyopinion，coinisnotabsolutelynecessaryforcarryingondomesticcirculation，andmorewillbesaidonthissubject，aswegoalong。ButIamheretoexaminethenatureandconsequencesofthisobligation，contractedbybanks，todischargetheirnotesinthecurrentcoinofthecountry。
Inthefirstplace，itisplain，thatnocoiniseverexceptinveryparticularcasescarriedtoabank，inordertoprocurenotes。Thegreatestpartofnotesissuefromthebanks，concerningwhichwearetreating，eitherinconsequenceofaloan，orofacreditgivenbythebank，tosuchascangivesecurityforit。Thisloanismadeintheirownnotes；whicharequicklythrownintocirculationbytheborrower；whoborrowedthem，becausehehadoccasiontopaythemaway。Inlikemanner，whenacreditisgiven，thebankpaysinhernotesalltheordersshereceivesfromthepersonwhohasthecredit:inthismannerarenotescommonlyissuedfromabank。
Coin，again，comestoabank，inthecommoncourseofcirculation，bypaymentsmadetoit，eitherfortheinterestupontheirloans，orwhenmerchantsandlandedmenthrowthepaymentsmadetothemintothebank，towardsfillinguptheircredits；orbywayofasafedepositfortheirmoney。Thesepaymentsaremadetothebankintheordinarycirculationofthecountry。Whenthereisaconsiderableproportionofcoinincirculation，thenthebankreceivesmuchcoin；andwhenthereislittle，theyreceivelittle。Whatevertheyreceiveislaidbytoanswernoteswhichareofferedforpayment；butwheneveradraughtismadeuponthemforthemoneythrowninasabove，theypayinpaper。
Asweareheresearchingafterprinciples，notafterfacts，itisoutofourwaytoinquirewhatmaybetherealproportionofcoinpreservedbybanksofcirculation，foransweringthedemandforit。
MrMegens，averyknowingman，andaveryjudiciousauthor，latelydead，whohaswrittenasmalltreatiseintheGermantongue，translatedintoEnglish，underthetitleofTheUniversalMerchant，delivershissentimentsconcerningtheproportionofcoinpreservedinthebankofEngland，whichIshallheretranscribeinthetranslator’swords。Sect。60。
’ThebankofEnglandconsistsoftwosortsofcreditors，theoneofthatsetofmen，who，inKingWilliam’stime，whenmoneywasscarceanddear，lentthepublic1，200，000pounds，at8percentinterest，and4000poundswereallowedthemforcharges，amountinginwholeto100，000poundsayear，anexclusiverightofbankingasacorporationfor13years，underthedenominationoftheproprietorsofthebank；andwhich，forobtainingprolongationoftheirprivileges，hasbeensinceincreasedbyfartherloanstothepublicatalessinterest，tonearthesumof11，000，000pounds，whichifwecomputetheinterestat3percentaswhattheyhavemoreonsomepartanswersincidentchargesitproduces330，000poundsayear；andastheydivideannually5percenttotheirproprietors，whichis550，000
pounds，itisevidentthattheymakeayearlyprofitof220，000
pounds，outofthemoneyofthepeoplewhokeepcashwiththem，andthesearetheothersortofcreditors:andasforwhatmoneythebanklendstothegovernment，theyhaveforthemostpartbut3percentinterest，Iconcludethatthecreditcashtheyhaveintheirhandsmayamountto11，000，000pounds，andthereoutisemployedinloanstothegovernment，inthediscountingofbills，andinbuyinggoldandsilver7，333，3331/3pounds，which，at3
percentinterestorprofit，willamounttotheabove220，000
pounds，andremains3，666，6662/3poundsincash，sufficientforcirculationandcurrentpayments。Andexperiencehasevinced，thatwheneveranymistrusthasoccasionedanyrunuponthebankforanycontinuance，andthepeoplenotfindingthetreasuresosoonexhaustedastheysurmised，itflowedinagainfasterontheonehandthanitwasdrawnoutontheother。’
ThisgentlemanlivedlonginEngland。Hewasveryintelligentinmattersrelatingtocommerce；andhisauthoritymay，I
believe，bereliedonasmuchasanyotherperson’s，exceptthatofthebankitself；which，itwouldappear，hassomeinterestinkeepingsuchaffairsasecret。
Weseebyhisaccount，thatthebankofEnglandkeepsincoinonethirdpartofthevalueofalltheirnotesincirculation。
Withthisquantity，businessiscarriedonwithgreatsmoothness，owingtotheprosperityofthatkingdom，whichseldomowesanyconsiderablebalancetoothernations。
Buttheconsequenceoftheobligationtopayincoin，is，thatwhenthenationcomestooweaforeignbalance，thenoteswhichthebankhadissuedtosupportdomesticcirculationonly，comeuponitforthepaymentofthisbalance；andtherebythecoinwhichithadprovidedforhomedemandonly，isdrawnout。
Itisthiscircumstance，aboveallothers，whichdistressesbanksofcirculation。Wereitnotforthis，theobligationtopayincoinmighteasilybedischarged；butwheninvirtueofthispureobligation，aheavynationalbalanceisdemandedfromthebank，whichhasonlymadeprovisionforthecurrentandordinarydemandathome，itrequiresalittlecombinationtofindout，atonce，aneasyremedy。
Thiscombinationweshall，inthefollowingchapters，endeavourtounfold:itisbyfarthemostintricate，andatthesametimethemostimportantinthewholedoctrineofbanksofcirculation。
Anotherinconveniencesresultingfromthisobligationtopayincoin，wehaveexplainedinthethirdbook。Itis，thattheconfusionoftheEnglishcoin，andthelightnessofagreatpartofit，obligesthebankofEnglandtopurchasethemetalsatapricefarabovethatwhichtheycandrawbackforthemaftertheyarecoined。Wehavethereshewnthegreatprofitthatmightbemadeinmeltingdownandexportingtheheavyspecies。ThisprofitturnsoutareallosstothebankofEngland，whichisconstantlyobligedtoprovidenewcoin，inproportionasitiswanted。Thisinconvenienceisnotdirectlyfeltbybanks，incountrieswherethereisnomintestablished。
Herethenisanotherbadconsequenceofthisobligationtopayinthemetals，whichaproperregulationofthecoinwouldimmediatelyremove。Incountrieswhichaboundincoin，bankingisaneasytrade，whenoncetheircreditiswellestablished。Itisprincipallywheneitheraforeignwar，orawrongbalanceoftradehascarriedoffthemetals，thattheweightofthisobligationtopayincoinisseverelyfelt。
Chap。VIII
HowawrongBalanceofTradeaffectsBanksofCirculationItiscommonlysaid，thatwhenthereisabalanceduebyanynationuponthewholeoftheirmercantiletransactionswiththerestoftheworld，suchbalancemustbepaidincoin。Thiswecallawrongbalance。Thosewhotransactthepaymentofthisbalance，arethosewhoregulatethecourseofexchange；andwemaysuppose，withouttheleastdangerofbeingdeceived，thatthecourseisalwayshigherthantheexpenceofprocuringandtransportingthemetals；becausetheoverchargeisprofittotheexchanger，whowithoutthisprofitcouldnotcarryonhisbusiness。
Theseexchangers，then，musthaveacommandofcoin；andwherecantheygetitsoeasily，andsoreadily，asfrombankswhoareboundtopayinit？
Everymerchantwhoimportsforeigncommodities，mustbesupposedtohavevalueinhishandsfromthesaleofthem；butthisvaluemustconsistinthemoneyofthecountry:ifthisbemostlyinbankpaper，hemustgivethebankpaperforabilltotheexchanger，whosebusinessitistoplacefundsinthosepartsuponwhichbillsaredemanded。Theexchangeragaintosupportthefundwhichheexhaustsbyhisdraughtsmustdemandcoinfromthebanks，forthenoteshereceivedfromthemerchantwhenhegavehimtheforeignbill。
Besidesthewrongbalancesoftradetransactedinthismanner，whichbanksareconstantlyobligedtomakegoodincoin，everyotherpaymentmadetoforeignershasthesameeffect。Itisnotbecauseitisabalanceoftrade，butbecauseitisapaymentwhichcannotbemadeinpapercurrency，thatademandismadeforcoin。Coinwehavecalledthemoneyoftheworld，asnotesmaybecalledthemoneyofthesociety。Thefirstthenmustbeprocuredwhenwepayabalancetoforeigners；thelastisfullasgoodwhenwepayamongourselves。
Itisproper，however，toobserve，thatthereisagreatdifferencebetweenthewrongbalanceoftrade，andthegeneralbalanceofpayments。Thefirstmarksthetotallossofthenationswhenherimportsexceedthevalueofherexports；thesecondcomprehendsthreeotherarticles，viz。1。theexpenceofthenativesinforeigncountries；2。thepaymentofalldebts，principalandinterest，duetoforeigners；3。thelendingofmoneytoothernations。
Thesethreeputtogether，makewhatIcallthegeneralbalanceofforeignpayments:andtheseaddedtothewrongbalanceoftrademaybecalledthegrandbalancewiththeworld。
Nowaslongasthepaymentofthisgrandbalanceisnegotiatedbyexchangers，allthecoinrequiredtomakeitgood，mustbesuppliedbybanks，whiletheyhaveonenoteincirculation。
Howthenisthiscointobeprocuredbynationswhohavenominesoftheirown？
Chap。IX
HowagrandBalancemaybepaidbyBanks，withouttheassistanceofCoinDidallthecirculationofacountryconsistincoin，thisgrandbalanceaswehavecalledit，wouldbepaidoutofthecoin，tothediminutionofit。
Wehavesaidthattheacquisitionofcoin，orofthepreciousmetals，addstotheintrinsicvalueofacountry，asmuchasifaportionofterritorywereaddedtoit。Thetruthofthispropositionwillnowsoonappearevident。
Wehavealsosaid，thatthecreationofsymbolicalmoney，addsnoadditionalwealthtoacountry，butonlyprovidesafundofcirculationoutofsolidproperty；whichenablestheproprietorstoconsumeandtopayproportionallyfortheirconsumption:andwehaveshewnhowbythiscontrivancetradeandindustryaremadetoflourish。
Maywenotconclude，fromtheseprinciples，thatasnationswhohavecoin，paytheirgrandbalanceoutoftheircoin，tothediminutionofthisspeciesoftheirproperty，sonationswhohavemelteddowntheirsolidpropertyintosymbolicalmoney，mustpaytheirgrandbalanceoutofthesymbolicalmoney；thatistosay，outofthesolidpropertyofwhichitisthesymbol？
Butthissolidpropertycannotbesentabroad；anditisallegedthatnothingbutcoincanbeemployedinpayingthisgrandbalance。TothisIanswer，thatinsuchacasethecreditofabankmaystepin，withoutwhichanationwhichrunsshortofcoin，andwhichcomestooweagrandbalancemustquicklybeundone。
Wehavesaidthatwhileexchangerstransactthebalance，thewholeloadofprovidingcoinliesuponbanks。Nowthewholesolidpropertymelteddown，intheirpaper，isintheirhands；becauseIconsiderthesecuritiesgiventhemfortheirpaper，tobethesameasthepropertyitself。Uponthisproperty，thereisayearlyinterestpaidtothebank:thisinterest，then，mustbeengagedtoforeignersbythebank，inlieuofwhatisowingtothembythenation；andwhenonceafundisborroweduponitabroad，therestiseasytothebank。Thisshallbefartherexplainedaswegoalong。
Idonotpretendthatthecommonoperationofprovidingcoin，whenthegrandbalanceisagainstanation，isassimpleasI
haverepresentedit。Iknowitisnot:andIknowalso，thatIamnotinanydegreecapabletoexplainthefinitecombinationofmercantileoperationsnecessarytobringitabout；butitisnolesstrue，thatthesecombinationsmaybeshortened:becausewhenthewholeofthemhavebeengonethrough，thetransactionmustendinwhatIhavesaid；towit，thateitherthegrandbalancemustbepaidoutofthenationalstockofcoin，oritmustbefurnishedbyforeignersuponaloanfromthem；theinterestofwhichmustbepaidoutofthatpartofthesolidpropertyofthenationwhichhasbeenmelteddownintopaper。Isayfarther，thatwerenotallthissolidpropertysomelteddowninthehandsofbanks，whotherebyhaveestablishedtothemselvesanenormousmercantilecredit；therewouldbenopossibilityofconductingsuchanoperation:thatistosay，therewouldbenopossibilityfornationstorunindebttonations，uponthesecurityoftheirrespectivelandedproperty。
Chap。X
InsufficiencyoftemporaryCreditsforthePaymentofawrongBalanceIhavesaid，thatwhenthenationalstockofcoinisnotsufficienttoprovidebankswiththequantitydemandedofthem，forthepaymentofthegrandbalance，thataloanmusttakeplace。Tothisitmaybeobjected，thatacreditissufficienttoprocurecoin，withouthavingrecoursetoaformalloan。ThedifferenceImakebetweenaloanandacreditconsistsinthis，thatbyacreditweunderstandatemporaryadvanceofmoney，whichthepersonwhogivesthecreditexpectstohaverepaidinashorttime，withinterestfortheadvance，andcommissionforthecredit；whereasbyaloanweunderstandthelendingofmoneyforanindefinitetime，withinterestduringnon-payment。
NowIsay，thecredit，inthiscase，willnotanswerthepurposeofsupplyingadeficiencyofcoin；unlessthedeficiencyhasbeenaccidental，andthatareturnofcoin，fromanewfavourablegrandbalance，bequicklyexpected。Thecreditwillindeedanswerthepresentexigency；butthemomentthiscreditcomestobereplaced，itmustbereplacedeitherbyaloan，orbyasupplyofcoin；orbyarenewaloftheformercredit；but，bythesupposition，coinisfoundtobewantingforpayingthegrandbalance；consequently，nothingbutaloan，madebythelenderseitherincoin，inthemetals，orinalibertytodrawuponthem，canremovetheinconvenience；andifrecoursebehadtoanewcredit，insteadoftheloan，thesamedifficultywillrecur，wheneverthiscreditagaincomestobemadegoodbyrepayment。
Uponthewhole，wemayconclude，thatnationswhooweabalancetoothernations，mustpayiteitherwiththeircoin，orwiththeirsolidproperty；consequently，theacquisitionofcoinis，inthisparticular，asadvantageousastheacquisitionoflands；butwhencoinisnottobeprocured，thetransmissionofthesolidpropertytoforeigncreditorsisanoperationwhichbanksmustundertake；becauseitistheywhoareobligedeithertodothis，ortopayincoin。
Chap。XI
OftheHurtresultingtoBanks，whentheyleavethePaymentofawrongBalancetoExchangersWehaveseeninaformerchapter，howexchangersandbanksaremutuallyassistanttooneanother:theexchangersbyswellingandsupportingcirculation；thebankbysupplyingthemwithcreditforthispurpose。Whilepartiesareunitedbyacommoninterest，allgoeswell:butinterestdivides，bythesameprinciplethatitunites。
Nosoonerdoesanationincurabalanceagainstitself，thanexchangerssetthemselvestoworktomakeafortune，byconductingtheoperationofpayingit。Theyappeartheninthelightofpoliticalusurerstoaspendthriftheir，whohasnoguardian。Thisguardianshouldbethebank，whouponsuchoccasionsanduponsuchonlyoughttointerposebetweenthenationandherforeigncreditors。Thisitmaydo，byconstitutingitselfatoncedebtorforthewholebalance，andbytakingforeignexchangeintoitshand，untilsuchtimeasitshallhavedistributedthedebtithascontractedforthenation，amongthoseindividualswhoreallyoweit。Thisoperationperformed，exchangemaybelefttothosewhomakethisbranchtheirbusiness，becausethentheywillfindnoopportunityofcombiningeitheragainsttheinterestofthebankorofindividuals。
Whenanationalbankneglectssonecessaryaduty，aswellassonecessaryaprecaution，thewholeclassofexchangersbecomeunitedbyacommoninterestagainstit；andthecountryistorntopieces，bythefruitlessattemptitmakestosupportitself，withoutthehelpoftheonlyexpedientthatcanrelieveit。
Thoseexchangershavingthegrandbalancetotransactwithothernations，makeuseoftheircreditswiththebank，andofitsnotes，inordertodrawcoinfromthebank，whichtheyexport。Thisthrowsagreatloaduponthebank，whichisconstantlyobligedtoprovideasufficientquantityofcoinforansweringalldemands；forwehavelaiditdownasaprinciple，thatwhatevercoinorbillsarenecessarytopaythisgrandbalance，ineverywayitcanbetransacted，itmustultimatelybepaidbythebank；becausewhoeverwantscoinforanypurpose，andhasbanknotes，canforcethebanktopaythemincoin，orstoppayment。
Itcannot，therefore，besaid，thatexchangersdowrong；norcantheybeblamedfordrawingfromthebankwhateveriswantedforthepurposeofpayingtoforeignerswhatistheirdue；thatis，whatisjustlyowingtothem。Iftheydomore，theymusthurtthemselves；becausewhateverissentabroadmorethanwhatisdue，mustconstitutetherestoftheworlddebtorstothecountrywhichsendsouttheircoin。Theconsequenceofthiswouldbetoturnexchangeagainstforeigners，andtomakeitfavourableforthenationwhichiscreditor。Inthiscase，werethecreditorsstilltocontinuesendingcoinabroad，theywouldlosebythisoperation，forthesamereasonthattheygain，bythatofsendingitoutwhentheyaredebtors。
Itisverycommonforbankstocomplain，whencoinishardtobeprocured，andwhenlargedemandsaremadeuponthem；theythenallegeunfairdealingsagainstexchangers；theyfalltoworktoestimatethebalanceoftrade，andendeavourtoshowthatitisnotinrealityagainstthecountry。
Butalas！thisisnothingtothepurpose；thebalanceoftrademaybeveryfavourable，althoughthebalanceofpaymentsbegreatlyagainstthecountry；andbothmustbepaid，whilethebankhasashillingofcash，oranoteincirculation。Sosoonagainasthegrandbalanceisfairlypaidoff，itisimpossiblethatanyonecanfindanadvantageindrawingcoinfromabank；
exceptinthesinglecaseofmeltingdowntheheavyspecies，innationswhichgivetheircoinagegratis。Ofthiswehavetreatedatsufficientlengthinanotherplace。
Banksmayindeedcomplain，thatmenofpropertysometimessendtheirmoneyoutofthecountry，atatimewhenitisalreadydrainedofitscoin；becausethisraisesexchange，andhurtsthetradinginterest。
Exchangemustrise，nodoubt，inproportionasthegrandbalanceisgreat，anddifficulttobepaid:Butwheredoestheblamelie？Whooughttoprovidethecoin，orthebillsforpayingthisgrandbalance？Havewenotshewnthatitisthebankalonewhooughttoprovidecoinforthereadyansweringoftheirnotes？
Havewenotsaid，thatthemethodofdoingthisistosacrificeapartoftheinterestdueupontheobligationsintheirhands，whicharesecureduponthesolidpropertyofthecountry，andtoappropriatethissumofinterestforafundtopayregularlytheinterestoftheforeignloans，whichwillprocureeitherthemetalsthemselves，orapowertodrawonthoseplaceswherethenation’screditorsreside？
Whichofthetwohasmostreasontocomplain，thebank，becausetheinhabitantsthinkfittosendtheireffectsoutofthecountry，beingeitherforcedsotodobytheircreditors，orchoosingsotodofortheirprivateadvantage；orthecreditorsofthebank，andthecountryingeneral，whenfromtheobstructionsthebankthrowsintheway，whenrequiredtopayitsnotesexchangeisforceduptoanexorbitantheight；thevalueofwhatprivatemerchantsowetostrangersisraised；andwhen，bydiscouragingtradeintheirhands，astopisputtomanufacturesandcreditingeneral？
Inaword，thebankhasnoreasontocomplain，unlesstheycanmakeitappear，howanyperson，exchangerorother，canfindanadvantageinsendingcoinoutofthecountry，atatimewhenthereisnodemandforit；orwhenthereisnonearprospectofademandwhichisthesamething？Tosaythataprincipleofpublicspiritshouldpreventapersonfromdoingwithhispropertywhatismosttohisadvantage，forthesakeofsavingsomemoneytoabank，issupposingthebanktobethepublic，insteadofbeingtheservantofthepublic。
Anotherargumenttoprovethatnoprofitcanbemadebysendingoutcoin，exceptwhenthebalanceisagainstacountry，is，thatweseeallrunsuponbanksstop，themomentexchangebecomesfavourable。Werethereaprofittobemadeuponsendingoffcoin，independentlyofthedebtstobepaidwithit，whichcannotbepaidwithoutit，thesametradewouldbeprofitableatalltimes。Asthisisnotthecase，itfollows，thattheprinciplewehavelaiddownisjust；towit，thatthebalanceduetoforeignersmustbepaidbybanks，whiletheyhaveanoteincirculation；andwhenonceitisfairlypaidbythem，allextraordinarydemandsmustcease。
Wenowproceedtoanotherpoint，towit，Whataretheconsequencestocirculation，whenagreatbalancedrawsawayalargequantityofcoinfromthebank，andsendsitoutofthecountry？
Chap。XII
ThatImaycommunicatemyideaswiththegreaterprecision，I
musthereenterintoashortdetailofsomeprinciples，andthenreasononasupposition。
Ithasbeensaid，thattheconsequenceofcreditandpaper-money，securedonsolidproperty，wastoaugmentthemassofthecirculatingequivalent，inproportiontotheusesfoundforit。
Theseusesmaybecomprehendedundertwogeneralheads。Thefirst，paymentofwhatoneowes；thesecond，buyingwhatonehasoccasionfor:theoneandtheothermaybecalledbythegeneraltermofready-moneydemands。
Whoeverhasaready-moneydemanduponhim，andpropertyatthesametime，oughttobefurnishedwithmoneybybankswhichlenduponmortgage。
Nowthestateoftrade，ofmanufactures，ofmodesofliving，andofthecustomaryexpenceoftheinhabitants，whentakenaltogether，regulateanddeterminewhatwemaycallthemassofready-moneydemands，thatis，ofalienation。Tooperatethismultiplicityofpayments，acertainproportionofmoneyisnecessary。Thisproportionagainmayincreaseordiminishaccordingtocircumstances；althoughthequantityofalienationshouldcontinuethesame。
Tomakethisevident，letussupposetheaccountsofawholecitykeptbyoneman；alienationmaygoonwithoutanypaymentatall，untilaccountsbecleared；andthennothingwillbetobepaid，exceptgeneralbalancesuponthewhole。Thishoweverisonlybythebye。Thepointinhandistoagree，thatacertainsumofmoneyisnecessaryforcarryingondomesticalienation；
thatis，forsatisfyingready-moneydemands:letuscallthisquantityA。
Next，inmostcountriesinEuropeImaysayall，itiscustomarytocirculatecoin，which，formanyuses，isfoundfitterthanpapernomatterforwhatreason；customhasestablishedit，andwithcustomevenstatesmenmustcomply。
Thepaper-moneyisgenerallymadepayableincoin；fromcustomalso。Now，accordingtothemannersofthecountry，moreorlesscoinwillberequiredfordomesticcirculation。Letitbeobserved，thathithertowehavenotattendedtoforeigncirculation，ofwhichpresently:andIsay，thatthemannersofacountrymaymakemoreorlesscoinnecessary，forcirculatingthesamequantityofpaper；merchants，forinstance，circulatemuchpaperandlittlecoin；gamesterscirculatemuchcoinandlittlepaper:oneexampleissufficient。
Letthisquantityofcoin，necessaryforcirculatingthepaper-money，becalledB，andletthepaper-moneybecalledC；consequentlyAwillbeequaltothesumofBandC。
Again，wehavesaid，thatallbalancesowingbynationtonation，mustbepaideitherincoin，orinthemetals，orinbills；andthatbankpapercanbeofnouseinsuchpayments。Letthequantityofthemetals，coin，orbills，goingoutorcomingintothecountryforpaymentofsuchbalance，becalledD。
Theseshortdesignationspremised，wemayreasonwithmoreprecision。Aisthetotalmassofmoneycoinandpaper
necessaryathome:AiscomposedofBthecoin，andofC
thepaper-money，andDstandsforthatmassofcoin，ormetal，orbills，whichgoesandcomesaccordingasthegrandbalanceisfavourableorunfavourablewithothernations。
Now，fromwhathasbeensaid，wemaydeterminethatthereshouldatalltimesremaininthecountry，orinthebank，aquantityofcoinequaltoB；andifthisbeeverfoundtofallshort，thebankdoesnotdischargeits。dutyItisunnecessarytodeterminewhatpartofBshouldbelockedupinthebank，andwhatpartshouldremainincirculation:banksthemselvescannotdeterminethisquestion:allweneedtosayis，thatitistheprofitofbankstoaccustompeopletotheuseofpaper-moneyasmuchaspossible；andthereforetheywilldrawtothemselvesasmuchcoinastheycan。
Whenafavourablebalanceoftradebringsthepriceofexchangebelowpar，andbringscoinintothecountry，theconsequenceis，eithertoanimatetradeandindustry，toaugmentthemassofpayments，toswellA，andstilltopreserveCincirculation；orelsetomakeAregorge，soastosinktheinterestofmoneybelowthebanklendingprice:inthiscasepeoplewillcarrybacktheregorgingpartofCtothebank，andwithdrawtheirsecurities；whichisconsolidating，aswehavecalledit，thepropertywhichhadbeenformerlymelteddown，forwantofthiscirculatingequivalentmoney。
Thisisconstantlytheconsequenceofastagnationofpaper，fromanoverchargeofit，thrownintocirculation。Itreturnsuponthebank，anddiminishesthemassoftheirsecurities，butneverthemassoftheircoin。
Fromthiswemayconclude，thatthecirculationofacountrycanonlyabsorbadeterminatequantityofmoneycoinandpaper；
andthatthelessusetheymakeofcoin，themoreusetheywillmakeofpaper，andviceversa。
Wemayalsoconclude，thatwhentradeandalienationincrease，caeterisparibus，sowillmoney；thatis，moresolidpropertywillbemelteddown；andwhentradeandalienationdiminish，caeterisparibus，sowillmoney；thatis，someofthesolidpropertyformerlymelteddown，willconsolidate，aswehavecalledit。
Thesevicissitudesinthemassofcirculationarenotpeculiartopapercurrency。Incountrieswherenothingcirculatesbutthemetals，thecaseisthesame；theoperationonlyismoreawkwardandexpensive。Whencoinbecomesscarce，itishardlypossible，inremoteprovinces，tofindanycreditatall；andinthecentreofcirculation，theuseofitinterestmustriseveryconsiderably，andmuststandhighforsometime，beforeevenintelligentmerchantswillimportbulliontothemint；whichistheonlybanktheyhavetofititforcirculation。Whenthemetaliscoined，thenmenofpropertyareenabledtoborrow，ortoselltheirlands。Ontheotherhand，whenafavourablebalancepoursinasuperfluityofcoin，whichatthesametimecutsoffthedemandsoftradeforsendingitabroad，itfrequentlyfallsintocoffers；whereitbecomesasuselessasifitwereinthemine；
andthisclumsycirculation，asImaycallit，preventscoinfromcomingintothehandsofthosewhowouldhaveoccasionforit，didtheybutknowwheretocomeatit。Paper-money，ontheotherhand，whenbanksandtradearewellestablished，isalwaystobefound。Thus，inaninstant，paper-moneyeithercreatesorextinguishesaninterestequaltoitsvalue，infavourofthepossessor。Nopartofitliesdead，notforaday，whenemployedintrade:itisnotsoofcoin。
Letusnowsupposeabankestablishedinacountrywhichowesabalancetoothernations。
Inthiscase，thebankmustpossess，orbeabletocommand，asumofcoinorbillsequaltoBandD；Bfordomestic，andDforforeigncirculation。
ThosewhoowethisbalanceD，andwhoaresupposedtohavevalueforit，inthecurrencyofthecountry，must，inordertopayit，eitherexhaustapartofB，bysendingitaway，ortheymustcarrypartofCtothebank，tobepaidforincoin。IftheypickupapartofBinthecountry，thenthecoinincirculation，beingdiminishedbelowitsproportion，thepossessorsofCwillcomeuponthebankforasupply，inordertomakeupBtoitsformerstandard。Bankscomplainwithoutreason。IftheycarrypartofCtobechangedatthebank，forthepaymentofD，theytherebydiminishthequantityofC；
consequentlytherewillbeademanduponthebankformorenotes，tosupportdomesticcirculation；becausethosenoteswhichhavebeenpaidincoinbythebankarereturnedtothebank，andhavediminishedthemassofC；whichthereforemustbereplacedbyanewmeltingdownofsolidproperty。
NowImusthereobserve，thatthisrecruitofnotes，supposedtobeissuedbythebank，inordertofillupCtothelevel，reallyimpliesanadditionmadetothemassofsecuritiesformerlylodgedwiththebank:andrepresents，notimproperly，thatpartofthelandedpropertyofacountrywhichthebankmustdisposeoftoforeigners，inordertoprocurefromthemthecoinorbillsnecessaryforansweringthedemandofD。
Whennotes，therefore，arecarriedtothebankforpaymentofdebtsduetothebank，theythendiminishthemassofsolidpropertymelteddowninthesecuritieslodgedinthebank:butwhennotesarecarriedtothebank，tobeconvertedintocoinorbills，forforeignexportation，theydonotdiminishthemassofthesecurities:onthecontrary，theconsequenceis，topavethewayfortheaugmentationofthem；becauseIsupposethatthesenotes，sogivenintothebank，andtakenoutofthecircle，aretobereplacedbythebank，todomesticcirculation，towhichtheybelonged；andthebankmustbeattheexpenceofturningintocoinorforeignbills，thevalueoftheseadditionalsecuritiesgrantedforthisnewrecruitofnotes。
Isnotthisquiteconsistentwithreason，fact，andcommonsense？Ifacountrycontractdebtstoforeigners，arenottheconsequencesjustthesameaswhenonemancontractsadebttoanotherinthesamesociety？Mustnottheultimateconsequenceofsuchdebtsbe，thattheymustbepaid，eitherwiththecoin，withthemoveables，orwiththesolidpropertyofthedebtor，transferredtothecreditor，inlieuofthemoneyowing？
Whenanationcanpaywithitscoin，orwithitseffectsthatistosay，withitsproductandmanufactures，theoperationiseasilyandmechanicallyperformedbythemeansoftrade:whentheseobjectsareit，notsufficient；thenland，oranannualandperpetualincomeoutofmustmakeupthedeficiency；inwhichcasemoreskillandexpenceisrequired；andthisexpencefallinguponbanks，makestheirtradelesslucrativethanintimeswhencommercestandsatpar，orisbringinginabalance。
Weretradetorunconstantlyagainstacountry，theconsequencewouldbe，thatthewholepropertyofitwould，bydegrees，betransferredtoforeigners。Butinthiscase，banksnevercouldneglectlayingdownaplanwherebytoavoidaconstantlosssimilartowhattheycasuallysustain，whensucharevolutioncomessuddenlyorunexpectedlyuponthem。
Themethodwouldbe，toestablishanannualsubscriptionabroad，forborrowingasumequivalenttothegrandbalance；theconditionbeingtopaytheinterestofthesubscriptionsoutoftherevenueofthecountry。
Ifthesecurityofferedbegood，thereisnofearbutsubscriberswillbefound，whilethereisanounceofgoldandsilverinEurope。
ThebankofEnglandhasanexpedientofanothernature，inwhattheycalltheirbankcirculation；whichisapremiumgrantedtocertainpersons，uponanobligationtopayacertainsumofcoinupondemand。Thisisdonewithaviewtoansweruponpressingoccasions。ButEnglandbeingaprosperoustradingnation，whichseldomhasanyconsiderablegrandbalanceagainstherexceptintimeofwar，whenthepublicborrowingssupplyinagreatmeasurethedeficiency，asshallbeafterwardsexplained，thisbankcirculationisturnedintoajob；thesubscriptionsbeinglucrative，aredistributedamongtheproprietorsthemselves，whomakenoprovisionforthedemand；andwerethedemandagaintocomeuponthemashasbeenthecase
thesubscriberswould，asformerly，makeacallonthebankitself，bypickinguptheirnotes，andpaytheirsubscriptionswiththebank’sowncoin。
Toobviatethisinconvenience，whichwasseverelyfeltintheyear1745，thebankofEnglandshouldhaveopenedasubscriptionforaperpetualloaninsomeforeigncountry；Holland，forexample；whereshemighthaveprocuredlargequantitiesofforeigncoin:suchaseasonablesupplywouldhaveprovedarealaugmentationofthemetals；thesupplytheygotfromtheirowndomesticsubscriberswasonlyfictitious。3*
Butbanksinprosperoustradingnationssitdownwithcasualandtemporaryinconveniences；andexchangerscarryonaprofitabletrade，whetherthenationbegainingorlosingallthewhile。Forsuchnations，andsuchonly，arebanksadvantageous。
WerebanksestablishedinSpain，Portugal，oranyothercountrywhichpaysaconstantbalancefromtheproduceoftheirmines，theywouldonlyhelpontheirruinalittlefaster。